Reinsurance (Part 2)
Forms of mutually taken obligations reinsurance contracts are subdivided on:
- facultative (unessential);
- obligatory (obligatory);
- facultative-obligatory, or “the open covering � contracts.
Facultative reinsurance contracts were the earliest form of reinsurance contracts. Such contract represents the individual transaction, concerning one risk. Its distinctive feature is that as reinsurer has the opportunity of individual estimation of risk to the overcautious person: reinsurer - in the decision of a question, how many it is necessary to leave in own risk (own deduction), and to the overcautious person - in the decision of questions of risk acceptance in certain sum. The negative party of facultative reinsurance is that reinsurer should transfer a part of risk up to the conclusion of the contract with the insurant. By virtue of it the overcautious person has a small time interval for the detailed analysis of received risk.
The contract of obligatory reinsurance obliges the reinsurer to transfer the certain shares to all risks accepted on insurance if their general insurance sum exceeds certain in advance own participation (guarantee) of the insurer. On the other hand, this contract imposes the obligation on the overcautious person to accept the shares of the offered risks. Such kind of the contract is most favorable for reinsurer as all in advance certain risks automatically receive insurance maintenance at the overcautious person.
The facultative-obligatory (transitive) form of the contract gives the reinsurer decision-making freedom: concerning what risks and in what size it is necessary to transfer. In turn the overcautious person is obliged to accept shares of risks on in advance stipulated conditions.